It's been mostly doom-and-gloom days for Republicans--a lost majority, Iraq, U.S. attorneys, soul-searching over just what happened to the party of Reagan. So it's worth noting a new intellectual debate that's rumbling to life in the party wings, one that could signal whether the GOP is capable of rediscovering its free-market principles.

That debate is about the future of health-care reform, and it got some momentum this week when Oklahoma Sen. Tom Coburn released a big-ideas blueprint for restructuring the entire health-care system--the tax code, Medicare, tort liability, insurance laws--along free-market lines. Dr. Coburn's plan builds on the White House's own bold proposal in January to revamp tax laws so as to put consumers back in control of their health-care decisions. Both plans are about fundamental, bottom-up health-care reforms, cast in the language of markets, consumers and individual control.

They're also the polar opposite of the health-care "reforms" that won GOP Govs. Arnold Schwarzenegger and Mitt Romney media huzzahs this past year, and have thus captivated no small few in the Republican party. The state plans are heavy on regulation, wrapped in red tape, and happy for taxes, though much of the bad has been squeezed behind a few fig leaves of market reform. This is mini-me Republicanism, but it has also allowed its creators to boast that they are offering "universal coverage"--a phrase that polls fabulously.

Which side wins? Who knows. But what is clear is that the scrap has come at a crucial moment. Americans are howling for relief for spiraling health-care costs and companies are drowning in doctor bills. Yet until recently, Democrats have been alone in offering a comprehensive answer to the problem: government-run health care. These liberals never offer details about the extraordinary costs, the miserable service, the wait lines, the Walter-Reed-like facilities, but then again, they don't have to. They have an easy-to-describe "plan," which is more than can be said of the other party.
This has led to some glumness in conservatives ranks, and a feeling that the debate has already been lost. That pessimism helps explain the Schwarzenegger and Romney programs, both of which ape the left's mantra of "universal coverage." Yet all that underestimates just how much intellectual progress conservatives have made since 1993 and the HillaryCare debate, when they were forced to start thinking seriously about health issues.

Conservative health-care guru John Goodman remembers going to Washington in the early 1990s to get Republicans interested in individual health savings accounts, and "only about five guys would even meet with me," he recalls. Now, HSAs "are a religion" among the right, he notes, and Republicans used their last years in the majority to significantly expand access to these accounts. In the past 15 years, the GOP has also planted the roots of Medicare reform, looked at interstate trade in health insurance, and got behind competitive Medicare reforms in their states.

The recent White House and Senate proposals are meant to package these ideas into a more unified, free-market whole. Mr. Coburn, like the White House, would remove the subsidy corporations get for health care, and instead give the money to individuals--putting them in charge of their health expenditures. It would expand HSAs, and allow consumers to buy insurance from any state, thereby avoiding costly regulations. It would modernize Medicare, allowing workers to invest their payroll taxes into a savings account and control their care in their retirement years. It would free up the states to inject Medicaid with new flexibility and competition.

There's plenty of big ideas in these new proposals over which conservatives can argue. Do they get behind tax rebates (à la Coburn) or tax deductibility (à la President Bush)? Do you leave medical liability to the states, or intervene with federal legislation to set up state "health courts"? Or do they write all this off as too hard a political sell, and run for the Schwarzenegger "universal coverage" cover?

The important thing is that debate equals education, which equals understanding, which equals precisely what the GOP needs right now. The Heritage Foundation's Mike Franc says Republicans are still too preoccupied with health-care small-ball--which procedures should be covered by Medicare, how much should generics cost--to get their heads around the broader subject. "This is still outside their intellectual comfort zone, and Republicans never do well in that situation," he says. "But to win this debate--the defining issue of the next 40 or 50 years--they're going to have to address it forcefully, head-on, and with every bit of their intellectual firepower."

You'd have thought the right would have figured this out by now, given its success at reframing other policy issues. When Republicans railed about welfare queens, they were viewed as the heartless party. When they turned the debate into one about the vicious cycle of dependency and poverty that welfare causes, they captured voters' imagination--they captured even Bill Clinton's imagination--and pushed through entitlement reform. Today, even the left agrees welfare-recipients should work.

Americans similarly tuned out the GOP's gripes about federal education spending, and reasonably so. All parents knew was that their kids were failing, and that Democrats were warning that fewer dollars would make things worse. Only when the GOP reframed the debate, and explained that this was a question of competition, of accountability, of greater parental choice, did they tap into long-held American ideals. Flowering charter schools and vouchers are one result. Ted Kennedy's admission that standards matter is another.

Those on the free-market side are starting to understand the need for a new language, especially if they are to coax more nervous elements of their party into embracing radical change. When President Bush unveiled his health-care tax overhaul in the State of the Union, he stressed that health-care decisions needed to be made by "patients and doctors," not government or insurance companies. Mr. Coburn's bill summary is littered with the words "choice," "empowerment," "competition," "flexibility," "control"--which is not only an honest assessment of what his proposal would provide, but one with which Americans can identify.

With Democrats running the show, Republicans now have the quality time to hash through this debate, and if they're smart, that'll be a priority. The left is so confident it owns the health-care issue, and so bereft of creative ideas, it risks squandering its advantage--just as the GOP lost its own credibility on fiscal restraint. But first, Republicans need to figure out what they believe.

Ms. Strassel is a member of The Wall Street Journal's editorial board, based in Washington. Her column appears Fridays.